Russia's regions ask the centre for financial help

Russia's far-flung region have been feeling financial strain and are asking the centre for help

By Vladimir Kozlov in MoscowNovember 7, 2017

Against the backdrop of the Russian economy gradually coming out of recession and oil prices on the rise, the country's far-flung region have been feeling financial strain and are asking the centre for help.

Udmurtia and its newly appointed governor Alexander Brechalov was the first region to turn to the federal government for help, followed by Karelia, which lacked RUB97.4 ($1.7bn) to raise wages for doctor and nurses in compliance with the so called May decrees issued by President Vladimir Putin in 2012 forcing regions to increase wages as part of his preparation for the 2018 elections. The decrees have put a huge strain on most regions that simply can’t afford them.

As a result regions have been driven into debt just as the centre has reduced transfers from the centre to the regions as part of cost-cutting exercise. If Russia is going to be hit by an economic crisis then it will most likely start in the regions. While the financial situation in many regions has improved recently thanks to better than expected economic growth, it remains dire in some.

In late October, the Khakassia region joined the club as the republic's supreme council requested RUB28.2bn from the centre, saying the region is facing "a catastrophic situation".

Other regions have also been asking the federal government for help, but they have been doing it in a less public way, a representative of deputy prime minister Dmitry Kozak, who is in charge of regional policies, was quoted as saying by Vedomosti.

Recently, the regions were allowed to restructure their debts to the federal budget, which could push them even more deeply into debt.

Overall, individual regional balances in January-June varied considerably. Of the 85 regions in the Russian Federation, six recorded a surplus of over 15% of revenue, while seven posted a deficit of greater than 10%, with the remainder in the intervening range.

While Moscow was responsible for one half of the regional budgets' surplus in January-August, amounting to RUB400bn, Khakassia, Udmurtia and Karelia are among those with the highest debts.

Meanwhile, the centre's orders, often aimed at raising wages in the public sector or pensions, add extra strain on the regions' budgets, and the centre has to step in and help.

As Russia moves towards digitization, security concerns have arisen due to the failure of government agencies to foot the security bill in timely fashion.

Everyone is on board. Digitisation has been made a top priority of the government that has already transformed the tax service so that a cosmonaut paid his taxes from space last year. Russia's economy is going online.

As labour markets tighten across CEE, economists say the best outcome for the region is for companies to respond to worker shortages by investing into new technologies.

Russia has refused to discuss with a high-level delegation from Minsk possible ways of compensating Belarus for its multi-billion losses from the so-called 'tax manoeuvre' in the Russian oil sector that will effectively cut energy subsidies to Belaru

Interest in Russian equities is picking up again as the economy recovers and earnings rise again, but the number of brokers is shrinking. The pie is getting smaller, but the pieces left have to be shared with fewer people.

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